This invention relates generally to assessing loan portfolios, and more specifically, to assessing collections variance in non-performing loan portfolios.
The term “loan portfolio” refers to a group of loans related by, for example, market segment or a geographic market. For example, a loan portfolio may consist of thousands of automobile loans in a particular country. A non-performing loan portfolio is a loan portfolio in which each loan is in late stages of delinquency (i.e., has many payments due). The term “variance” refers in this context to a difference between actual payments and planned payments arising from a re-negotiation.
A lender may have many non-performing loans (e.g., 10,000 to 20,000 loans) having a total value of billions of dollars, worldwide. Management of non-performing loan portfolios typically involves monitoring the productivity and yield of the overall collection process, and its constituent steps. More specifically, managing non-performing loans involves administration of the following matters:                status of borrower negotiations, as asset managers work with borrowers through a series of standard settlement milestones,        annual business plans established for each borrower in each portfolio, ascribing the expected amount and timing of cash flows, and collection method strategy,        actual monthly payments made by each borrower to retire the debt, and        account characteristics (borrower, loan, collateral, asset manager).        
A lender may seek investors to participate in the risk and rewards associated with acquiring and managing non-performing loan portfolios. Among typical investor requests in connection with non-performing portfolios the investor owns, or is considering investing in, are forecasts of monthly amounts collected for each portfolio up to one year in advance, as well as detailed explanations of actual differences or variances from the targeted, or planned, collection amounts.